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Federal R
eserve b a n k
O F DALLAS
WILLIAM H. WALLACE
F IR S T V IC E P R E S ID E N T
October 17 , 1986
d a lla s , te x a s
75222
C ir c u la r 86-87
TO:
The Chief Executive O fficer of a l l
depository i n s t i t u t i o n s in the
Eleventh Federal Reserve D i s t r i c t
SUBJECT
Request for public comment on a proposal for recovery o f automated
clearing house f l o a t
DETAILS
The Board of Governors of the Federal Reserve System is re questing
public comment on a proposal to recover the c o s t to the Federal Reserve of
automated c l e a r i n g house f l o a t using a f l o a t f a c t o r p r ic in g methodology.
The
Board proposes to asse ss a f l o a t f a c t o r based on the d o l l a r value of ACHd ebit
t r a n s a c t i o n s processed a t n ig h t. This f l o a t f a c t o r would be equal to the
r a t i o of the p rojected c o s t of net d e b i t f l o a t to the projected value of ACH
d e b i t t r a n s a c t i o n s processed a t n ig h t .
The f l o a t f a c t o r would rep lace most of the c u r r e n t $.06 per item
surcharge applied to ACH d e b i t items processed a t n i g h t . Because the c u r r e n t
nig ht cycle surcharge recovers both f l o a t c o s t and higher operati ng expenses,
the Board has proposed to a d j u s t the surcharge to recover only the higher co st
of nighttime op e r a tio n s. The proposal would e s t a b l i s h a uniform nigh t cycle
surcharge estimated a t $.015 fo r both d e b i t and c r e d i t ACH t r a n s a c t i o n s .
ATTACHMENTS
The Board's press r e l e a s e and document req uesting public comment are
attach ed .
MORE INFORMATION
For f u r t h e r information, please co n tact Jonnie K. M i l l e r , Manager,
E le ctron ic Payments Division a t (214) 651-6290, or Larry C. Ripley, A s s i s ta n t
Vice P r e s i d e n t , a t (214) 651-6118.
S incerely yours,
For additional copies of any circular please contact the Public Affairs Department at (214) 651-6289. Banks and others are
encouraged to use the following incoming WATS numbers in contacting this Bank (800) 442-7140 (intrastate) and (800)
527-9200 (interstate).
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
FEDERALRESERVEpressrelease
For Immediate release
September 17, 1986
The Federal Reserve Board today Issued for public comment a proposal
t o modify the method of recovering the cost of automated clearing house (ACH)
f l o a t and to e s ta b lis h a nlg h t-cycle surcharge t o compensate for the higher
operating co sts during t h i s time.
Comment is requested by November 21.
Federal Reserve f lo a t Is generated 1f there are delays 1n the System's
handling of debit and cred it transactions.
Debit f l o a t occurs when the System
cred its the originator of a debit transaction before the receiver 1s charged.
Credit f l o a t r e s u lts when the System receives funds from the originator of a credit
transaction before the r e c e iv e r's account i s credited.
To recover ACH f l o a t , the Board proposes to assess a flo a t factor based
on the d ollar value of ACH debit transactions processed at night because the majority
of ACH f l o a t occurs during t h i s time when large-d ollar debit transactions,
primarily intra-corporate cash consolidations, are processed.
This flo a t factor
would be equal to the ratio of the projected cost of net debit f lo a t to the
projected value of ACH debit transactions processed at night.
The factor would
then be applied to the value of a l l debit transactions deposited by an originating
in s t it u t i o n at night to determine the fee for f lo a t to be assessed to that
I n s tit u tio n .
Because the current nlght-cycle surcharge recovers f lo a t costs and higher
operating expenses, the Board has proposed to adjust the surcharge to recover
only the higher co sts of nighttime operations.
The proposal would estab lish a
uniform n lg h t-cycle surcharge, estimated at $.015, for both debit and credit ACH
transactions.
The Board's notice i s attached.
-
0-
FEDERAL RESERVE SYSTEM
(Docket No* R-0579)
AUTO MAT ED CLEARING HOUSE FLOAT RECOVERY
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Proposed rule? request for comment,
SUMMARY:
The Board of Governors of the Federal
("Board")
is
recovering
house
requesting
the
("ACH")
cost
of
comments
on
a
Reserve System
proposed
float generated
method
by automated
of
clearing
transactions processed during the night cycle and
a corresponding
reduction
of
the
current
per
item
surcharge
assessed on night cycle ACH transactions.
Specifically,
the
Board
proposes
to
establish
each
year a "float factor" equal to the ratio of the projected
of
float
to
the
projected
processed at night.
value
of all
debit
This
to that
of
ACH
factor would
transactions
institution at night
assessed
value
The
transactions
then be applied
deposited
to determine
institution.
debit
by
the charge
cost
an
for
float factor
to the
originating
float
to be
charges
would
be included in the institution's regular billing invoice.
Because
float,
the
float and
night
the
this
float
cycle
higher
factor would recover
surcharge,
costs
of
currently
operating
at
set
the costs of
to
night,
reduced to cover only the higher operating costs.
recover
could
be
Accordingly,
the Board proposes to set the nighttime surcharge to cover only
these higher operating costs,
currently estimated at $.015 each
for both debit and credit transactions.
- 2DATE:
Comments on
the proposal
should be
submitted
no
later
than .November 21, 1986.
ADDRESS:
data,
Interested
parties
are
invited
to
the Federal Reserve
System,
and Constitution Avenue, N, W . , Washington,
deliver
such
comments
to
the
guard
Building Courtyard on 20th Street,
Avenue and C Street,
Docket No. R-0579.
between
provided
in
N. W.)
8:45
a.m.
and
section 261.6(a)
(202/452-3879),
(202/452-3955),
station
N. W.
or
Julius
Division of Federal
Attorney,
5:15
of
Telecommunications
p.m.
Device
the
of
the
Federal
the
or
(12 C.F.R.
Earl
Florence
F.
Division
for
Reserve
as
Regarding
G.
Hamilton,
Young,
Manager,
Assistant
Advisor
(202/452-3878),
Elaine Boutilier,
(202/452-2418);
the
in Room
except
Rules
to
§ 261.6(a)).
M.
Oreska,
to
Eccles
inspected
Board's
Deaf
Earnestine Hill or Dorothea Thompson
Governors
20551,
weekdays,
Reserve Bank Operations;
Legal
in
20th Street
(between Constitution
Comments received may be
FOR FURTHER INFORMATION CONTACT:
Director,
D. C.
Secretary,
Written comments should refer
Availability of Information.
Senior
written
views and other comments to William W. Wiles,
Board of Governors of
B-1122
submit
("TDD")
or
users,
(202/452-3544),
System,
Board of
Washington,
D. C.
20551.
SUPPLEMENTARY
U.S.C.
of
248a)
Federal
debit
occurs
and
INFORMATION:
Monetary
Control
Act
(12
requires the Federal Reserve to recover the costs
Reserve
credit
when
The
float generated
ACH
transactions
processing
delays
are
by priced
may
services.
generate
experienced.
float,
When
Both
which
debit
- 3transactions
are processed,
the receiver
of
be delayed
funds
flow to the originator
the transactions.
in processing,
Should a debit
from
transaction
debit float would be created because
the originator's reserve or clearing account would be credited
before the receiver's account would be charged.
credit
transactions,
receiver.
Should
generated
because
transactions
1985,
funds
flow
processing
the
before
from
delays
originator
the
the
originator
occur,
is
receiver's
In the case of
credit
charged
account is
to
the
float
for
is
the
credited.
In
the daily average ACH net debit float was $24.5 million,
resulting in total float cost of $1.68 million.
The
processing
majority
of
operations
ACH
float
because
transactions,
primarily
transactions,
are
most
processed
at
processing delays
night without a delay
less
time
between
during
night.
processing
and
the
cash
night
debit
consolidations
Float
is
rarely
because transactions
the day
in settlement.
during
large-dollar
intra-corporate
generated by the daytime operations
up by
occurs
can be
Also,
settlement
held
processed
there
for
at
is generally
transactions
handled at night.
Currently, the cost of net debit float attributable to
processing delays
is recovered
through a surcharge applied
to
all debit transactions processed at night, which recovers the
1/ Total ACH float cost is determined by multiplying the daily
average net debit float by the Fed Funds rate.
- 4cost of
the majority of ACH
uniform
surcharge
creates
processing
inequities
float.
among
users
service because an institution originating
debit
transaction
institution
will
pay
originating
transaction,
yet
the
the
a
same
large
cost
of
6^
(e.g.
float
on
dollar
transactions
are
of
this
the
ACH
a small
(e.g.
surcharge
as
$10,000)
debit
the
larger
transactions would be significantly higher.
of small
However,
Thus,
subsidizing
$100)
an
dollar
originators
originators
of
large dollar transactions.
In
addition
to
current night surcharge
the
cross-subsidies
caused
for debit transactions,
by
the
it appears
that
the level of the fee has been a disincentive for using the ACH
to clear
some
point-of-sale
address
time-critical,
and
automated
these concerns,
and also reevaluated
the
small
teller
dollar
payments,
machine
such
transactions.
Board considered
the current surcharges
as
To
two alternatives
that
are
assessed
to recover the higher costs of nighttime operations.
Float Recovery —
net debit float were
Two alternatives
for recovering ACH
identified and evaluated.
Under the first
alternative, originators of debit transactions would be charged
the cost of float
(“charge-back")
that would be generated when
transactions they originated are delayed.
similar
to
the
procedures
the
Federal
This method would be
Reserve
recover certain categories of check clearing
second alternative,
Banks
float.
use
Under
a "float factor" would be developed.
to
the
The
factor would equal the ratio of the projected cost of net debit
float
to
the
projected
value
of
ACH
debit
transactions
- 5processed
2/
at
night.—
The
factor
would
then
be
applied
to
the value of all debit transactions deposited by an originating
institution at night.
Based on the cost of ACH debit float and
the value of debit transactions processed at night during 1985,
the float factor would have been $.0012 per thousand dollars of
debit
transactions
million
The
debit
originated.
transaction,
float charge
would
the
be
For
an
float
originator
charge
in addition
to
would
the
of
a
be
basic
$3
$3.60.
fee
to
process the transaction during the night cycle.
Both the float factor and the charge-back alternatives
have significant advantages over
alternative reduces the
and
removes
night.
a
Also,
barrier
each
cause
of
some
small-dollar
alternative
large-dollar
surcharge.
inequity associated with
to
processing
the current
would
payments on
these payments
payments
increase
the ACH
to migrate
to
the surcharge
processed
the
cost
and would
the
Each
at
of
likely
large-dollar
wire transfer networks, thereby reducing payment system risk.
The charge-back alternative
current
surcharge,
customers
benefit
originating
complex
from
the debit
cost of the float.
be
because
the
the
depository
float,
transactions,
However,
operationally,
is more equitable than the
that
institutions
is,
would
the
whose
institutions
be charged
for
the
the charge-back alternative would
because
float
tracked at the individual payment level.
would
have
to
be
The cost of
2J It is expected that the float factor would be set once a
year, like other ACH fees, and would be based on budget
information supplied by the Reserve Banks.
- 6developing a mechanism to track
level
and
the costs
of
float at the individual payment
additional
staff would
method of float recovery cost effective.
not make
Therefore,
this
the Board
is not proposing adoption of this alternative.
The f l o a t
factor
equitable and simple
to
has
the
ad van tage
implement.
The
that
float
it
is
b o th
factor would be
assessed on all night cycle transactions based on the value of
3/
transaction.— 7
each
Currently,
the
institution's Reserve office collects
transaction,
so no additional
originating
depository
information on each
monitoring
capability
would
ACH
be
needed.
The Reserve Banks estimate that the cost of modifying
existing
software
than
$50,000
and
to implement the
float factor would be less
would
additional
require
no
staff
in
the
operations at the Reserve offices.
A disadvantage of the float factor alternative is that
the
factor
is
consequently,
cost.
other
set
may
to
recover
underrecover
In this regard,
however,
estimated
or
float
overrecover
cost,
actual
the float factor
and
float
is not unlike
fees for payments services.
Because
depository
the float
institutions
factor
and
does
alternative
not
have
is equitable
the
to
operational
complexity and high cost associated with the direct charge-back
3/
Although ACH debit float is primarily attributable to
Tnterregional transactions, the Board is proposing to assess
the float factor to all nighttime debit transactions to
maintain the low administrative costs and operational
simplicity of this alternative.
- 7alternative,
the Board
is proposing
to adopt
this method
for
ACH float recovery.
Nighttime Surcharges —
recovery
alternatives,
surcharges
were
transactions
the
As part of the study of
current
reviewed.
The
is $.06, which
nighttime
present
float
processing
surcharge
for
is intended to recover
debit
the cost of
float and the higher operating costs of night processing.
night surcharge for one-day credit transactions
set
to
cover
the
additional
operations.
Currently,
assessed
night
the
operating
two-day
surcharge,
cost
credit
in order
is $.03 and
of
transactions
are
to
earlier
encourage
At the time these
implemented,
assessing
two-day
credit
nighttime
believed
transactions
operations
for
that
would
these
a
use
transactions.
for other
added
transactions,
delivery
assessing
a
time
small
and many
is
for
the
that
the
is the same as
institutions believe that the
important,
surcharge
of
Given
costs of processing two-day credit transactions
not
fees were
surcharge
discourage
is
nighttime
delivery of payroll transactions.
it was
The
for
it
is
two-day
now
believed
credit
that
transactions
should not affect significantly the use of this option.
After
proposes
that
transactions
surcharge
reviewing nighttime processing costs,
the
at night
applied
to
processed at night.
$.06
additional
is based
on
should
all
cost
be
debit
of
recovered
and
processing
through
credit
a
the Board
ACH
uniform
transactions
The reduction in the debit surcharge from
the
assumption
that
float
cost
would
be
- 8recovered
through
transactions,
the
same.
Therefore,
be
Based
current
on
nighttime
night
float
factor.
In
the
case
of
credit
the cost of processing one and two-day credits
surcharge
should
the
applied
it
proposed
to both
types
information,
surcharge
for
be approximately
surcharge
is
would
both
it
of
is
debit
$.015.
It
provide
for
that
a
uniform
credit
credit
is expected
a
more
night
transactions.
estimated
and
is
that
the
transactions
that
the
equitable
new
fee
structure, as the fees would reflect actual operating costs for
all types of transactions processed.
Therefore,
the Board requests comments from interested
members of the public on the proposed
to recover
"float factor" to be used
the costs of ACH net debit
float and
the
proposed
adoption of a uniform surcharge for ACH transactions originated
at night calculated to reflect the actual
nighttime operating
costs.
Board
of
Governors
of
the
Federal
Reserve
System,
September 17, 1986.
(signed) William W. Wiles
William W. Wiles
Secretary
FEDERAL RESERVE BANK OF DALLAS
STATION K
DALLAS, TEXAS 7 5 2 2 2
RETURN POSTAGE GUARANTEED
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DALLAS, TEXAS
Permit No. 151
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